2008 BAR

Question XI
a.) Since February 8, 1935, the legislature has not passed even a single law
creating a private corporation. What provision of the Constitution precludes
the passage of such law?

Suggested Answer:
Section 16, Article XII of the 1987 Constitution states: The Congress shall not,
except by general law, provide for the formation, organization, or regulation of
private corporations. The same provision is contained in Section 7, Article XIV of
the 1935 Constitution and Section 4, Article XIV of the 1973 Constitution.
b.) May the composition of the board of directors of the National Power Corp.
(NPC) be validly reduced to three (3)? Explain your answer fully.
Suggested Answer:
The composition of the board of directors of the NPC may not be validly reduced to
three. The Corporation Code applies in a suppletory manner to corporations created
by a special law. A Corporation must have at least five directors.

Question XII
Pedro owns 70% of the subscribed capital stock of a company which owns an office
building. Paolo and Juan own the remaining stock equally between them. Paolo also
owns a security agency, a janitorial company and a catering business. In behalf of
the office building company, Paolo engaged his companies to render their services
to the office building. Are the service contracts valid? Explain.
Suggested Answer:
The service contracts are voidable at the option of office building company as
provided in Section 32 of the Corporation Code, viz.:
Sec.32. Dealings of directors, trustees or officers with the corporation. A contract
of the corporation with one or more of its directors or trustees or officers is voidable,
at the option of such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which
the contract was approved was not necessary to constitute a quorum for
such meeting;

2. That the vote of such director or trustee was not necessary for the approval
of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the
board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent,
in the case of a contract with a director or trustee, such contract may be ratified by
the vote of the stockholders representing at least two- thirds of the outstanding
capital stock or of at least two thirds of the members in a meeting called for that
purpose: Provided, That full disclosure of the adverse interest of the directors or
trustees involved is made at such meeting: Provided, however , That the contract is
fair and reasonable under the circumstances.

Question XIII
Grand Gas Corporation, a publicly listed company, discovered after extensive
drilling a rich deposit of natural gas along the coast of Antique, For five months , the
company did not disclose the discovery so that it could quietly and cheaply acquire
neighboring land and secure mining rights to the land. Between the discovery and
its disclosure of the information to the SEC, all the directors and key officers of the
company bought shares in the company at very low prices. After the disclosure, the
price of the shares went up. The directors and officers sold their shares at huge
profits.
a.) What provision of the Securities Regulation Code did they violate, if any?
Explain.
Suggested Answer:
a.) They violated section 27 of the Securities Regulation Code, on insiders
duty to disclose when trading, to wit:
It shall be unlawful for an insider to sell or buy securities of the issuer,
while in possession of material information with respect to the issuer or
the secure that is not generally available to the public unless : a) the
insider proves that the information was not gained from such relationship;
or b) if the other party selling t or buying from the insider ( or his agent) is
identified, the insider proves: (i) that he disclosed information to the other
party otherwise is also in possession of the information.
B ) Assuming that the employees of the establishment handling the printing work of
Grand Gas Corp. saw the exploration reports which were mistakenly sent to their
establishment together with other materials to be printed. They too bought shares

in the company at low prices and later sold them at huge profits. Will they be liable
for violation of SRC? Why?
Suggested Answer:
Yes, the employees of the establishment handling the printing job of the
corporation are also liable for violation of the prohibition against insider trading.
These employess fall within
the classification of an insider under subsection
3.8 (c) of the SRC, to wit: a person whose relationship or former relationship to the
issuer gives or gave him access to material information about the issuer or the
security that is not generally available to the public.

Question XIV
Ace Cruz subscribed to 100,000 shares of stock of JP Development Corp., which has
a par value of P1 per share. He paid P25,000 and promised to pay the balance
before December 31, 2008. JP Development Crp. Declared cash dividend on Oct. 15,
2008, payable on December 1. 2008.
a.) For how many shares is Ace Cruz entitled to be paid cash dividends?
Explain.
Suggested Answer:
Ace Cruz is entitled to be paid cash dividends for 100,000 shares of stocks.
Although he has not fully paid for his shares of stocks, he is not delinquent and is
therefore entitled to all the rights of a stockholder (Sec. 72, Corporation Code).
b.) On December 1, 2008, can Ace Cruz compel JP Developent Corp. to issue
to him the stock certificate corresponding to the P25,000 paid by him?
Suggested Answer:
No, Ace Cruz cannot compel JP Development Corp. to issue to him a stock
certificate corresponding to P25,000 paid by him. Section 64 of the Corporation
Code provides that No certificate of stock shall be issued to a subscriber until the
full amount of his subscription together with the interest and expenses (in case of
delinquency), if any is due, has been paid, Cruz has not fully paid his subscription
for 100,000 shares.